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Jan, 04 2012

Bucks ‘Stock’ Here

If client acquisition strategy is in your blood and you're set to make moolah at the rate of knots, then the business of brokerage is an apt choice for you.

CONSIDERING the cut-throat competition and entry of new players, the brokerage industry is going through a transformation phase with major players consolidating their businesses and taking franchise route for expansion to reap profits. With this, top-notch brokerage houses came up with risk-free opportunities to achieve an exponential growth in the sector. However, fragmented market still exists. According to a report of ICRA, Indian equity brokerage industry is fragmented with around 15,000 brokers and 37,000 SEBI registered sub-brokers. Among these, there are over 1,200 active brokers on National Stock Exchange (NSE) and over 600 on Bombay Stock Exchange (BSE).

Presently, retail brokerage segment accounts for more than half the total turnover, as compared to players having wide network and offering brokerage services at competitive rates are able to capture large market share and increase participation of investors.

Market potential

The Indian retail brokerage market has shown a phenomenal growth. As per market estimates by Anand Rathi Group: “The domestic equity brokerage turnover (BSE and NSE combined) registered an increase of 46 per cent in financial year 2010-11 to Rs 339 lakh crore led by a sharp 127 per cent growth in the options segment. The derivatives segment contributed to 86 per cent of the overall turnover in financial year 2011, as compared to 76 per cent in financial year 2010, while the options segment accounted for 58 per cent in financial year 2011 (37 per cent in financial year 2010) and futures segment for 29 per cent during the same period (39 per cent in financial year 2010). Within the options segment, the index option based on NIFTY alone accounted for nearly 95 per cent of the total options volume, providing adequate liquidity and further fueling investor appetite.” Along with this, the commodities market, too, witnessed an overall increase in volumes.

Today, the brokerage houses are moving towards a consolidation phase by signing the franchise deal with the local/existing sub-brokers and thereby by giving a thrust to conversion franchising too. Traditionally in India, when it came to investing in stocks or money management-related issues, customers used to look for financial advice from their own circle. By tapping brokers through conversion franchising, franchisors, too, got benefited, as existing brokers already had a client base from his own natural market/locality, which was favourable for driving profits. Subsequently, online trading is also gaining a firm ground, as customer preferences are shifting from approaching brokers, as a result of aggressive Internet penetration.

In a brokerage industry, the investment requirement is almost similar whether one gets connected with a big or a small brand. So, it eventually gives an edge to entrepreneurs, who want to invest in low-cost yet money-spinning business.

According to Ketan Shah ( Associate Director IT & Business Development), Angel Broking: “With increasing disposable income of Indians, growth in tier-II and III cities and responsible approach towards wealth creation by young population will drive the overall growth of stock broking industry.”

Food for franchising

The business of stock brokerage thrives on building a strong customer relationship by delivering timely and customised advice for better investment decisions. As per the NSE data, franchisee network in stock brokerage business has grown from around 5,000 sub-brokers in 2005 to 70, 000 sub-brokers in 2011, representing over 50 per cent year-on-year growth during this period. This shows the brokerage industry has grown beyond the market volatility and thus giving it an organised shape by offering products and advisory-related services in a reformed structure.

Replicating the success through identical stores is gaining ground, as many brokerage houses such as Motilal Oswal Securities Ltd, Anand Rathi Group, Angel Broking, India Infoline, Sharekhan, ICICI Securities Ltd, Unicon Financial Intermediaries Pvt Ltd, Sykes & Ray Equities Pvt ltd, Religare Securities Ltd, SKI Capital and many more are relying on a franchising model for multi-city roll out and to serve the high net worth clients across the country.

When asked about targeting franchisees, Pradeep Gupta, Vice-Chairman and Co-Founder of Anand Rathi Group, said: “We are aggressively looking out for franchisees and believe in providing quality research, value added services, online support, wide range of products and advisory services through which any franchisee can cater to all financial needs of his valued customers, resulting in bigger business volumes. So, we want to associate with people having entrepreneurial skills and zeal to grow.”

Presently, Anand Rathi Group operates 158 company-owned and 900 franchise outlets in India. While talking about company's growth plans, Pradeep informs: “By December 2012, we want to add 1,200 new franchise outlets.” Also, Angel Broking boasts of having 164 company-owned outlets and 9, 835 franchise outlets. Marching ahead, Ketan says: “We are targeting all cities with specific focus on tier-II and III cities for expansion and plan to add around 1,500 franchisees to our portfolio.”

Whereas, Motilal Oswal Securities Ltd (MOSL), a well-diversified financial services firm, currently has a large base of sub-brokers spread across India. Commenting on expansion spree, Vijay Kumar Goel, Director Broking & Distribution, Motilal Oswal Securities Ltd, says: “We have aggressive plans to expand our distribution network through a franchisee channel. We have sizeable presence in tier-II and III cities and are looking to expand aggressively in this category. We are planning to expand our network to all cities/towns.”

To ramp up their retail distribution channel and achieve market's largest pie, brokerage houses have started consolidating their businesses by joining hands with the local sub-brokers to target unrepresented areas. Credit goes to franchising model, as it not only provides impetus to the growth but also trims the associated risk for small brokers. They are given comprehensive training and support to deal with challenges.

Entering into a sphere of stock brokerage industry is not everyone's cup of tea. For operating a franchise business of brokerage, sub-broker/franchisee must have an adequate knowledge about the stock market, local market client base, ability to develop business, willingness to acquire new clients and provide quality service to clients, a high speed Internet connection and NSE's Certification in Financial Markets (NCFM).

Motilal Oswal Securities Ltd scouts for franchisees who have a vast understanding of investment products, a graduate with at least three years of experience in the industry / financial sector with a strong flair towards marketing and relationship building. As per Anand Rathi Group, only 3-4 persons are required to operate the centre.

Training & support

In a day-to-day dealing with the high net worth clients, a sub-broker or a franchisee has to satisfy their demands in a best possible way. To avoid any risks of brand's dilution, franchisors anticipate from franchisees to follow the company's guidelines for a better representation of their brand. On offering training and support to franchisees, Shah asserts: “We have specially designed training programmes keeping in mind that there are partners coming from various backgrounds and may or may not possess the required knowledge about the industry. This training to franchisees is imparted by process owners and business heads directly to ensure that there is no dilution in any of the training programmes.” On the other side, Goel maintains: “Over the years, we have built robust processes and tools to train our franchisees as well to support them to grow their business through centralised advisory set-up. We organise regular training programmes for our franchisees and their staff members on our processes, technology products, advisory products, sales and marketing skills etc.”

To ensure quality, Anand Rathi Group provides extensive training to franchisees at the nearest branch or regional office, a dedicated link for online training and updated information through its online system. All franchisees are also provided with research reports, which they can access through mails.

The way forward

According to Motilal Oswal Securities Ltd, the stock market related business is extremely cyclical, as it gives a platform to franchisees to earn high profit margins.

Talking about industry's profitability quotient, Shah asserts: “With rising income levels, the demand for financial products is set to grow and leading to a large market size. The equity penetration in our country is low and when we combine it with the expectations of 17-18 per cent earnings growth from corporates.”

Experts feel that brokerage business in India is poised to grow in the coming years, as franchisees/sub-brokers are headed in a right direction, as franchising model gives them a sufficient boost to get started.

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